The 'New' Xerox Earns Outperform Rating From Credit Suisse

Following the Conduent spinoff, Xerox Corp (NYSE: XRX) has “a more focused print business, potential upside to cost savings, strong management and a well laid out long-term strategy to offset end market decline,” Credit Suisse’s Kulbinder Garcha said in a report. He upgraded the rating on the company from Neutral to Outperform, while reducing the price target from $10 to $8.

On back of the spinoff, the EPS estimates for the standalone company for FY 2017 and '18 EPS are at $0.89 and $0.90, respectively.

Revenue To Stabilize

“We remain cautious about overall printing spend, but believe that management is realistic and has a long term vision of moving the business away from mature declining markets to growth segments such as graphics and Managed Print Services (MPS),” Garcha wrote.

While the ongoing revenue pressures are expected to continue in the near term, the business mix shift is expected to help stabilize revenue over time, Garcha added.

OM Expansion

Management projected operating margin expansion from 12.0–12.5 percent to 12.5–14.5 percent, with a “cost transformation plan” that is expected to result in $1.5 billion of gross cost savings over three years.

“We believe this plan could be revised upwards, but note that benefits from this plan flow in FY18 onwards, as FX continues to pressure margin expansion in FY17,” the analyst commented.